Will ATI Be Broken Up? Analyst Lays Out Options

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Now that AMD’s acquisition of ATI Technologies has closed, will the ax fall?

According to one Wall Street analyst, it’s possible. And Doug Freedman of American Technology Research said in a report Thursday that the most likely target could be a plum indeed: ATI’s discrete graphics business.

The argument, according to Freedman, is that the future lies in integrated graphics, of the type that Intel has driven into a leadership spot in the PC industry.

“After analysis of the options, we believe AMD could divest the discrete GPU business and still achieve the company’s longer term goal to integrate a CPU and GPU onto a single silicon chip,” Freedman wrote.

“The discrete GPU business working from within AMD will be at a disadvantage to nVidia and other independent GPU suppliers. ‘AMD’ GPUs will be very closely tied to AMD platforms and limited in the amount of traction they will be able to gain on Intel-based systems,” Freedman added.

“This will be a marketing issue more so than a technical issue. However, it is unlikely that Intel or nVidia will support Crossfire (ATYT’s dual-card technology) in their chipsets, thereby reducing the total available market,” Freedman said. “While the performance/enthusiast PC market has been a small but lucrative niche, recent acquisitions of boutique PC suppliers by Dell (Alienware) and HP (VoodooPC) will bring this technology to a wider audience. Neither these large OEMs nor the smaller boutiques want to be bound to a single GPU supplier.”

The argument for spinning off or selling the unit is sevenfold, according to Freedman. First, the discrete GPU business has better prospects for success as a stand-alone company serving the PC market, not just the AMD share, he said. Second, AMD is unlikely to integrate a high-end, billion-transistor GPU. Third, the chipset unit has “the most synergies” with AMD’s microprocessor business, he said.

Intel may develop its own low-end standalone GPU, Freedman argued as his fourth reason, echoing a frequent rumor. Fifth, “it is likely that the Integrated Graphics group within the chipset business unit is strong enough to help develop the single chip MPU-GPU product,” he said.

Freedman’s final arguments were financial: the company can sign technology licenses for its GPU technology, creating a revenue stream, he said. Finally, ditching the standalone business would lower AMD’s revenue by only $1.4 billion while increasing its gross margins to over 50 percent.

The disadvantage, in addition to the divestiture of a driving portion of ATI’s technology business, would be that the unit generates 64 percent of the company’s revenue.

Other options include merging ATI into AMD’s business units without significant strategic changes, selling off the high-margin handheld graphics business, or selling both the handheld and GPU businesses, keeping only the chipset business.

Freedman said that he expects AMD’s CPU roadmap to remain unchanged through 2007, adding a new improved Opteron core by mid-2007 and n improved Turion core in mid 2007 as well.

“Athlon will not see significant changes other than the move to 65nm manufacturing,” Freedman wrote.

Sources have said, however, that AMD plans to launch its double dual-core platform, “4X4,” by mid-November, on Nov. 15.